It doesn`t do anything else than providing the FCS with information like Altitude and VS.
The Altitude encoders were usually installed in the P1 and P2 Altimeters and exactly therefore the switch was used. Many Aircraft however have been modified with external Encoders because the requirements to Surveillance Equipment (TPX, Mode S, EHS, TAWS) have changed during the past decades frequently, so the originally installed encoders in the Altimeters weren`t able to communicate with the new systems due to incompatibilities.
In all 1900D`s I know (4 in total, I know not really many!) the switch was left only for saving the money for a blind cap!
RG, BG140